Question

Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $48,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:

	Product X			Product Y			Total
Allocated joint processing costs	$	19,200		$	28,800		$	48,000
Sales value at split-off point	$	20,000		$	30,000		$	50,000
Costs of further processing	$	24,700		$	19,000		$	43,700
Sales value after further processing	$	38,800		$	59,300		$	98,100

Required:

a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.)

b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point?

c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?

d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?

Answer 1

Particulars	X	Y	Total
Sales Value after further processing	$ 38,800	$ 59,300	$ 98,100
Less - Allocated Joint Cost	$ 19,200	$ 28,800	$ 48,000
Costs of further processing	$ 24,700	$ 19,000	$ 43,700
Total Cost	$ 43,900	$ 47,800	$ 91,700
Net Advantage/(Disadvantage) if products are sold after further process	$ (5,100)	$ 11,500	$   6,400

a. If the product X is processed beyond split off point it would incur a loss of $(5,100) as shown in the above table

b. If the product Y is processed beyond split off point it would incur a profit of $11,500 as shown in the above table

Particulars	X	Y	Total
Sales Value at split off point	$ 20,000	$ 30,000	$ 50,000
Less - Allocated Joint Cost	$ 19,200	$ 28,800	$ 48,000
Total Cost	$ 19,200	$ 28,800	$ 48,000
Net Advantage/(Disadvantage) if products are soldat split off point	$       800	$   1,200	$   2,000

c. The minimum amount to be accepted if product X is sold at split off point would be $800 as per the above table.

d The minimum amount to be accepted if product Y is sold at split off point would be $1,200 as per the above table.